Social ties bind CEO, directors at Victoria’s Secret parent
Activist investor argues board lacks independence from executive Leslie Wexner
For decades, Leslie Wexner has run Victoria’s Secret and his retail empire with a close-knit group of directors. But amid scrutiny of the board’s ties to the 81-year-old billionaire, the company is preparing to bring in some fresh blood.
L Brands Inc. has retained a search firm to look for three new board candidates, according to people familiar with the matter. The company is looking to increase its board diversity and aiming to replace some directors at its May annual meeting, they said.
The change would come after an activist hedge fund raised concerns about the Columbus, Ohio, company’s board this month, saying its members lack the independence or skills needed to navigate the drastic changes in the lingerie market.
Mr. Wexner built L Brands, which also owns Bath & Body Works, into a global powerhouse from a single store in Columbus, Ohio, in 1963.
Mr. Wexner, who is chairman and CEO, has drawn heavily from his local ties to populate the retailer’s 12-person board, whose average tenure is 20 years.
But sales have declined in its lingerie business and the company’s stock price has tumbled by a third from a year ago.
Barington Capital Group LP, a New York hedge fund that has a stake valued at less than 1%, urged the company to add more women and younger directors who are outside of Mr. Wexner’s business and social circles. It also called on L Brands to consider breaking itself apart.
“It is unclear that the board as currently comprised has the independence to effectively oversee you as chief executive officer,” James A. Mitarotonda, chief executive of Barington, wrote in a March 5 letter to Mr. Wexner.
Mr. Wexner remains the com- pany’s largest individual shareholder, with a 17% stake. His wife, Abigail, is also on the board, and neither is independent under the rules of the New York Stock Exchange. Two additional directors also don’t meet the requirements, including one who acts as a business adviser to the Wexners.
Though the company classifies the remaining eight directors as independent, most of them have close ties to the Wexners, Barington argues. One headed a university to which Mr. Wexner promised $100 million. Another runs a charity that partners with an organization founded by Mrs. Wexner. One director was formerly employed by Mr. Wexner at his retail company.
“It’s an old-style board with the kinds of interrelationships you saw many years ago, particularly in certain localities,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “It’s surprising that this kind of board continues to exist in today’s climate.”
A spokeswoman for L Brands said Mr. Wexner and the other board members weren’t available to comment.
In last year’s proxy filing, L Brands said the eight directors were independent because they hadn’t worked for the company in the past three years, weren’t related to top executives, hadn’t received more than $120,000 from the company within the past three years and fulfill other criteria. L Brands said it evaluates whether a director is independent on a case-by-case basis.
At L Brands, the average age of its directors is 71 years old, and seven of them have been on the board for more than a dozen years. Three are women, and the youngest is 57. The median age of a director at S&P 500 firms is 63.3, while the median tenure is 7.8 years.
“When more than a third of directors have served for more than nine years, that’s when we start to have a little bit of concern,” said John Roe, head of ISS Analytics, the data intelligence arm of Institutional Shareholder Services. “The danger is groupthink, or the reluctance to consider new opinions.”
Mr. Wexner, who was behind other mall staples such as the Limited, Abercrombie & Fitch and Lane Bryant, bought Victoria’s Secret, consisting of six stores and a catalog, in 1982 for $1million. He opened hundreds of stores and bet on high-profile fashion shows featuring supermodels in push-up bras. The formula served him well. Victo- ria’s Secret, with more than $7 billion in annual revenue, is the leader in the women’s underwear market.
But in 2016, the brand began losing steam as shoppers gravitated toward more unstructured styles, such as bralettes and sports bras. Competitors capitalized on the natural trend by emphasizing untouched ads and featuring models of different shapes and sizes. Victoria’s Secret tried to adjust by hiring new leaders and changing its products, but some of Mr. Wexner’s decisions—such as eliminating swimwear from stores and continuing to rely on Edward Razek, his 70-year-old marketing chief—have emboldened critics.
Shares, which have fallen about 30% over the past year, closed Wednesday at $28.18. The stock traded near $100 in late 2015.